Corporate Governance is the way corporations are governed at the best interest of the stakeholders. Corporate governance represents the relationship among stakeholders that is used to determine and control the strategic direction and performance of organizations.
Corporate governance is based on principles such as conducting the business with all integrity and fairness, being transparent with regard to all transactions, making all the necessary disclosures and decisions, complying with all the laws of the land, accountability and responsibility towards the stakeholders and commitment to conducting business in an ethical manner.
Corporate governance has been emphasized in recent years because, as the opening case illustrates, corporate governance mechanisms occasionally fail to adequately monitor and control top-level managers’ decisions. Collapse of Enron, WorldCom etc due to manager dysfunction.
Corporate governance is known to be one of the criteria that foreign institutional investors are increasingly depending on when deciding on which companies to invest in. It is also known to have a positive influence on the share price of the company. Having a clean image on the corporate governance front could also make it easier for companies to source capital at more reasonable costs.